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Soft Cheese Bogs Down Abe's Bid to Be Free Trade Champion

(Bloomberg) -- Camembert and mozzarella could be just about all that stands between Japanese Prime Minister Shinzo Abe and his plan to take a global leadership role on free trade.

European Union Trade Commissioner Cecilia Malmstrom meets with Foreign Minister Fumio Kishida Friday in a last-ditch effort to reach a broad agreement on a free trade deal after four years of talks. A pact would cover more than a quarter of the world economy, and both sides have been keen to wrap things up before the Group of 20 summit starting July 7 in Germany.

Japan is hoping to get rid of tariffs on exports of auto parts and cars, while the European side is pushing for tariff-free access for its farm products -- with the biggest problem being cheese.

Disappointed by U.S. President Donald Trump’s decision to pull out of the Trans-Pacific Partnership trade deal in January after agonizing negotiations, Abe’s government has sought to keep the free-trade momentum going. But he has met stubborn opposition from the agriculture lobby among lawmakers in his ruling Liberal Democratic Party who are emboldened by a plunge in popular support for the prime minister.

“Japan and the EU are on the front line in the fight against protectionism,” said Masayoshi Honma, an economics professor at Seinan Gakuin University in Fukuoka. “They must reach some kind of agreement.” Failure would “cause great damage to free trade, not just in terms of Japan and the EU, but globally.”

Japan imposes steep tariffs on agricultural products, including 30 to 40 percent on cheese, 38.5 percent on beef and up to 30 percent on chocolate. The EU has tariffs of 10 percent on cars and 14 percent on electronic goods.

The Japanese automobile industry complains of a disadvantage against competitors from South Korea, which already has a free trade agreement with the EU. But the country’s lawmakers are going in to bat for their traditional supporters in the agriculture industry.

Worried Producers

While Japan’s cheese production grew about 9 percent to 144,000 tons over the two years to 2016, the EU is the world’s biggest cheese exporter, shipping out 3.6 billion euros ($4.1 billion) last year. EU cheese exports to Japan grew by 75 percent between 2012 and 2016.

Scoring economic benefits for Europe is all the more important at a time when political leaders across the EU face voter concerns about job losses from globalization and a popular backlash against it.

“European pork and dairy products including cheese are more competitive than those from the U.S. or TPP countries, and imports are increasing from the EU,” an LDP panel said in a document prepared for submission to Abe at a meeting planned for next week. “Producers are extremely worried.”

While negotiators have remained tight-lipped in public about the talks, domestic media reports have said soft cheeses are the biggest remaining stumbling block, and that one solution could be to divide cheese into different categories to protect Japan’s producers. Domestically produced mozzarella and camembert are widely available in supermarkets at much lower prices than their foreign equivalents.

No Concessions

“We in the agriculture sector won’t concede even a single step,” lawmaker Koya Nishikawa, the head of the LDP panel, told reporters Thursday. “I want the Agriculture Ministry to bear that in mind in negotiations.”

Abe is planning to fly to Brussels ahead of the G-20 summit to seal the agreement, the Sankei newspaper reported last week. Such an event could bolster his image as an economic reformer and distract attention from the gaffes and scandals that have dogged his cabinet in recent weeks, leading to a slump in public support.

“We want to get rid of the remaining problems in these negotiations,” Kishida told reporters Thursday. “The talks will be very tough, very difficult, but I want to do everything in my power.”

A deal could also risk disrupting the relationship between the premier and his party, who have acted in lockstep since he swept to office in 2012. With controversial plans in the pipeline to change the pacifist constitution, some senior lawmakers have already begun to distance themselves from him ahead of a leadership election expected in autumn 2018.